After reaching a tentative agreement to raise the US debt ceiling, investors will now turn their attention to the Fed's interest rate plan. The US employment report is expected to be closely scrutinized on Friday, and strong data could fuel expectations for another rate hike in June. PMI data from China will also be important, as it could reinforce the view that the recovery in the world's second largest economy is faltering. Eurozone inflation data is likely to increase pressure on the European Central Bank (ECB).
A preliminary agreement to raise the national debt ceiling was reached by Democratic President Joe Biden and top Republican in Congress Kevin McCarthy. This will prevent a default that could cause turmoil in the global economy. However, the deal must make its way through Congress before the government runs out of money to pay off the debt. The debt ceiling standoff has already taken its toll on financial markets, impacting equities and pushing high rates on the sale of some bonds.
The US employment report, which will be published on Friday, is one of the key data ahead of the June Fed meeting. The growth in the number of jobs and wages in previous months fuels expectations of a new rate hike. However, some Fed officials have expressed concerns about inflation, which remains high, and this opinion is reinforced by the latest data indicating that inflation is rising above the Fed's target.
The US stock market is seeing gains ahead of the long weekend and on hopes of a debt ceiling deal. Speeches by Fed officials will also be watched by investors this week.
China is to release PMI data on Wednesday, and manufacturing and services are expected to show slower growth. This is in line with recent economic data indicating a loss of momentum in the Chinese economy due to weakening demand. At the same time, data on consumer price inflation will be published in the euro area, which is likely to underline the need for further efforts by the ECB in the fight against high inflation.